May 30 -
-- The outstanding balance of the class A9 notes repaid in 2011, and accordingly we have withdrawn our rating on this class.
-- We have also affirmed our ratings on all remaining classes in the transaction.
-- These ratings are based on our criteria for rating European CMBS. However, these criteria are under review. As a result of this review, our future European CMBS criteria may differ from the current criteria. The criteria change may affect the ratings on all outstanding notes in this transaction.
Standard & Poor's Ratings Services today affirmed its 'AA (sf)' credit ratings on the class A1 to A8 and class A10 to A11 notes issued by Land Securities Capital Markets PLC under its GBP6 billion multicurrency program. At the same time, we have withdrawn our rating on the class A9 notes, as they have fully repaid (see list below).
The program was established in 2004 to substantially refinance and consolidate the existing debt of Land Securities PLC--a wholly owned subsidiary of Land Securities Group PLC, the largest listed property company in the U.K.--and to finance ongoing business activities. It is secured on a diversified portfolio of properties located across the U.K., with sector concentrations in the office and retail markets (at September 2011: 45% and 46%, respectively).
The program is structured with a tier regime, 1 to 3, with a variety of financial and operational covenants applying to each tier.
The program currently operates within the Tier 1 regime, which provides maximum operational flexibility and requires that the loan-to-value (LTV) ratio is maintained at less than 55%, and that the interest coverage ratio (ICR) is more than 1.85x. The borrower is not committed to operate within this tier, but the operational flexibility that it affords is an incentive to do so. Additional covenants such as the introduction of a liquidity facility (Tier 2), and more importantly, additional payment restrictions and loan amortization (Tier 3) apply when operating within the other tiers.
At September 2011, the transaction reported an LTV ratio of 38%, and a projected ICR of 3.24x. Moreover, the outstanding note balance has reduced to GBP3.04 billion, from GBP3.80 billion at the time of the last note issuance in 2007.
In May 2011, the class A9 note balance was fully repaid. We have therefore withdrawn our rating on this class of notes.
As at September 2011, there were 157 properties in the portfolio, with a reported portfolio value of GBP8.9 billion. Our ongoing credit analysis focuses on diversification covenants, such as sector and geographic concentrations within the portfolio, as well as the reported portfolio value. The sector and geographic concentration limits have not been breached since closing.
We note that the issuer has reset the disposal threshold (referenced to the valuation noted above), which will permit it to dispose of assets representing up to 30% of that value. Resetting the disposal threshold also resets the allocated debt amount for each of the properties. The allocated debt amount, which is payable as assets are sold, is set at 130% of the market value.
We note too that the trigger for replacement of the account bank has been reset at an 'A-1' rating level (from 'A-1+'). Under our 2010 counterparty criteria, a counterparty providing direct limited support meeting this rating can support ratings of up to 'AAA (sf) ' on the notes in the transaction (see "Counterparty And Supporting Obligations Methodology And Assumptions," published on Dec. 6, 2010).
We have taken today's rating actions based on our criteria for rating European commercial mortgage-backed securities (CMBS). However, these criteria are under review (see "Advance Notice of Proposed Criteria Change: Methodology And Assumptions For Rating European Commercial Mortgage-Backed Securities," published on Nov. 8, 2011).
As highlighted in the Nov. 8 Advance Notice Of Proposed Criteria Change, we expect to publish a request for comment (RFC) outlining our proposed criteria changes for rating European CMBS transactions. Subsequently, we will consider market feedback before publishing our updated criteria. Our review may result in changes to the methodology and Assumptions we use when rating European CMBS, and consequently, it may affect both new and outstanding ratings on European CMBS transactions.
Until such time that we adopt new criteria for rating European CMBS, we will continue to rate and surveil these transactions using our existing criteria (see "Related Criteria And Research").
If applicable, the Standard & Poor's 17g-7 Disclosure Report included in this credit rating report is available at
-- Advance Notice of Proposed Criteria Change: Methodology And Assumptions For Rating European Commercial Mortgage-Backed Securities, Nov. 8, 2011
-- Principles Of Credit Ratings, Feb. 16, 2011
-- Counterparty And Supporting Obligations Update, Jan. 13, 2011
-- Counterparty And Supporting Obligations Methodology And Assumptions, Dec. 6, 2010
-- Framework For Credit Analysis In European CMBS Transactions, May 21, 2007
-- Technical Challenges In European CMBS Structures, Feb. 16, 2006
-- European CMBS Loan Level Guidelines, Sept. 1, 2004
Land Securities Capital Markets PLC
GBP3.798 Billion Fixed-Rate Notes (From GBP6 Billion Multicurrency Programme For The Issuance Of Notes)
A2 AA (sf)
A3 AA (sf)
A4 AA (sf)
A5 AA (sf)
A6 AA (sf)
A7 AA (sf)
A8 AA (sf)
A10 AA (sf)
A11 AA (sf)
A9 NR AA (sf)